Why are investors so desperate for a Bolsonaro win?

. Oct 28, 2018
Why are markets so desperate for a Bolsonaro win

All polls in the second round showed far-right presidential candidate Jair Bolsonaro having a comfortable lead over Workers’ Party’s candidate Fernando Haddad. The belief that nothing could take Mr. Bolsonaro’s win away from him has excited investors and international markets. Between the first and second rounds, the São Paulo stock market gained 4.13 percent, while the Brazilian Real rose 5.27 percent – this, despite a tough international scenario, where emerging currencies are struggling. 

Why are markets so desperate for a Bolsonaro win?

On Friday, October 26, the last trading day before the election, the Ibovespa stock market index closed at 85,719.87 points, up 1.95 percent from Thursday. The U.S. Dollar lost ground against the Brazilian Real, closing the day at BRL 3.65 (a drop of 1.42 percent).

</span></p> <hr /> <p><img class="alignnone size-large wp-image-10547" src="" alt="Why are markets so desperate for a Bolsonaro win?" width="1024" height="700" srcset=" 1024w, 300w, 768w, 610w, 1200w" sizes="(max-width: 1024px) 100vw, 1024px" /></p> <hr /> <p><span style="font-weight: 400;">The question, however, remains: why are investors so committed to Jair Bolsonaro, a candidate who says he doesn&#8217;t know the <a href="">first thing about the economy</a>?</span></p> <h2>He&#8217;s not the Workers&#8217; Party</h2> <p><span style="font-weight: 400;">According to analysts and experts, in Mr. Bolsonaro the markets saw their best shot at dethroning the Workers&#8217; Party, the winner of the last four elections. Mr. Haddad would be paying the price less for Lula&#8217;s administration (2003-2010), but rather for the disastrous economic guidance under Dilma Rousseff (2011-2016). </span></p> <p><span style="font-weight: 400;">Ms. Rousseff increased public spending, controlled prices in a futile attempt to mask real inflation on services and goods, and promoted wildly unpopular austerity measures when the crisis had already reached its worst levels. Even if Fernando Haddad was anything but fiscally irresponsible when he ran São Paulo as mayor, the spectre of Dilma Rousseff still hangs over investors, making it difficult for them to disassociate the two.</span></p> <p><span style="font-weight: 400;">Moreover, Mr. Haddad has promised to revoke the federal spending cap and the labor reform approved under Michel Temer, measures the markets see as &#8220;urgent&#8221; and &#8220;necessary.&#8221; </span></p> <p><span style="font-weight: 400;">In these investors minds, against the Workers&#8217; Party, any candidate would be the &#8220;lesser evil.&#8221;</span></p> <h2>Paulo Guedes</h2> <p><span style="font-weight: 400;">At the beginning of the year, the darling of the center-right was <a href="">TV presenter Luciano Huck</a>, tipped for a surprise run at the presidency. Famous nationwide for a TV program that revolves largely around helping the disenfranchised, Mr. Huck could cater to the part of the Brazilian public who believe that the state should fulfill its role as a “provider.” However, Mr. Huck also pleased the business class because of his market-friendly views. Ultra-libertarian economist Paulo Guedes was firmly on his side.</span></p> <p><span style="font-weight: 400;">After Mr. Huck declared he wouldn&#8217;t be on the ballot, Mr. Guedes decided to bet on another horse: the up-and-coming extremist candidate with no plans for the economy, Jair Bolsonaro. It was a match made in heaven (or hell, depending on where you stand politically) of a candidate searching for economic ideas and an economist looking for a candidate to champion them.</span></p> <p><span style="font-weight: 400;">Mr. Guedes&#8217;s alma mater is the University of Chicago, the cradle of ultra-libertarian economists such as Milton Friedman. He defends a radical plan of privatizations (even if most of the Brazilian electorate does not), a deeper pension system reform than the one proposed by Michel Temer&#8217;s administration, <a href="">tax cuts for the rich</a>, fewer labor rights, and less intervention from the state in the economy. That sounds like music to the ears of many market operators.</span></p> <p><span style="font-weight: 400;">The fact that Mr. Guedes is being investigated for fraud doesn&#8217;t seem to be a red flag. Nor does Mr. Bolsonaro&#8217;s track record as a congressman &#8211; when he voted against opening the Brazilian economy to foreign products, against privatizations, and against creating the Brazilian Real.</span></p> <h2>Levy and Dilma all over again?</h2> <p><span style="font-weight: 400;">Markets support Jair Bolsonaro because he would be the furthest thing from Dilma Rousseff. However, they could receive something similar to the impeached president. Upon winning her second term, in 2014, Ms. Rousseff chose banker Joaquim Levy as her finance minister. Another Chicago Boy, Mr. Levy was nicknamed &#8220;Scissorhands&#8221; for his fondness for austerity measures.</span></p> <p><span style="font-weight: 400;">But Ms. Rousseff never empowered her minister, often rebuking the unpopular measures he championed with Congress. To make matters worse, the Workers&#8217; Party itself boycotted the administration, not willing to embrace an austerity package the president promised throughout the campaign wouldn&#8217;t be necessary. Mr. Levy&#8217;s tenure lasted for less than a year.</span></p> <p><span style="font-weight: 400;">Some analysts worry that the marriage between Mr. Bolsonaro and Mr. Guedes could be one of the same kind. The presidential hopeful has already given statements questioning the privatization of the infrastructure sector &#8211; saying he doesn&#8217;t want to &#8220;hand the country over to the Chinese.&#8221; About privatizing energy companies, he said: &#8220;Let&#8217;s say you have a chicken coop in your garden. If you privatize it, there&#8217;s no guarantee you&#8217;ll be able to eat some eggs afterwards. Are we going to leave our energy in the hands of other countries?&#8221;</span></p> <p><span style="font-weight: 400;">But in their bid to get anything which is not remotely close to Dilma Rousseff, markets could end up with just that.

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